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Building professionals caught in the cross fire

Mar 2019 |
Construction & Engineering

The Victorian Civil and Administrative Tribunal (VCAT) has recently handed down the long-awaited decision on the Lacrosse apartment tower litigation.1 The litigation was instituted by the owners corporation and individual unit holders against the builder, LU Simon. The decision has important implications for builders and building professionals in particular, in relation to combustible cladding.

Facts

On Monday 24 December 2014 at the Lacrosse apartment tower (Lacrosse), at 673-675 La Trobe Street, Docklands, Victoria, a fire started in apartment 805 on level 8 of the east side of the tower. The fire started following a discarded cigarette butt placed into a plastic food container which ultimately caught fire, spreading to the external wall cladding of the building.

The smoke detector in the hallway just outside the front door of apartment 805 activated and generated an automatic alarm to the metropolitan fire brigade. When the first crew arrived the fire was travelling rapidly up the external wall cladding, spreading onto the balcony on each level. The fire climbed to the roof of the tower above level 21. The rapid spread of the fire was facilitated by the aluminium composite panels (ACPs) used on the southern wall of the tower. The ACPs had a 100% polyethylene core.

This case concerned the attribution of responsibility to (and among) the eight respondents for the damage caused by the fire. The primary focus of the case was on the selection, approval and installation of the aluminium composite wall cladding that carried the fire. The damage to the Lacrosse tower was extensive; consequently the applicants claimed current and anticipated future losses exceeding $12 million.

There were 211 applicants, comprising the owners corporation and individual unit owners, and eight respondents, namely:

the builder;

the building surveyor;

the architects;

the fire engineer;

the occupier of apartment 805;

the tenant of apartment 805; and

the superintendent under the building contract.

Contracts between construction respondents

The contracts entered into by each of the builder, the building surveyor, the architect and the fire engineer were pivotal in ascribing liability for this proceeding. The builder had a Design and Construct (D&C) contract with the developer of Lacrosse which was executed on 14 May 2010. The building surveyor offered their services for the Lacrosse project with a formal consultant agreement signed in January or February 2010. The architect was involved from the earliest stages of the Lacrosse project. Its engagement was formalised by a client and architect agreement dated 12 June 2007. The fire engineer entered into a consultancy agreement with the superintendent, in or around 9 July 2010. The appointment of the superintendent coincided with the D&C contract dated 14 May 2010.

The Hearing

The hearing was heard by Judge Woodward, in his capacity as Vice President of the VCAT, and occupied 22 sitting days between September and October 2018. That was a remarkably brief hearing, given the complexity of the proceeding and bearing in mind the Tribunal book ran to 91 volumes, and included reports from 14 different experts. A conclave of the five fire engineering expert witnesses was of assistance to VCAT, as was the ‘hot tubbing’ of expert witnesses of the same discipline during the hearing.

The Issues

This case focused on the selection, approval and installation of the ACPs used throughout the building. The issues for VCAT to determine centred around the following three issues:

What caused the extensive damage to the Lacrosse tower?

Were the ACPs used compliant with the Building Code of Australia (BCA)?

How should the liability of the respondents be apportioned?

Decision

Cause of Damage

VCAT concluded that the ignition source of the fire was an incompletely extinguished cigarette butt, left by the tenant in a plastic food container, which then spread to a timber table top and eventually to the south facing balcony walls on the east side of the Lacrosse tower.

The other cause of the fire was held to be the installation of ACPs with a 100% polyethylene core on the external walls of the building.

Compliance with the BCA

As there was no alternative solution for the installation of ACPs under the BCA, the compliance of the panels was required to be assessed by VCAT by reference to the Deemed-to-Satisfy (DTS) provisions of the Code, as then in force.

It was common ground that the external walls were required to be non-combustible, given the building was a type A construction (i.e. because it was a residential building of four or more storeys), with the issue of combustibility determined by AS1530.1: Methods for fire tests on building materials, components and structures.

The building surveyor submitted that the ACPs installed satisfied two DTS concessions as to non-combustibility, at the time the building permit was issued in June 2011. However, VCAT disagreed with these submissions, as a matter of construction.

Liability

VCAT held that the builder breached the warranties implied into the D&C construct pursuant to s 8 of the Domestic Building Contracts Act 1995 (Vic) (DBCA), for the reasons below.

However, the Tribunal found that the following respondents were responsible for the loss:

fire engineer for 39%;

building surveyor for 33%;

architect for 25%; and

tenant for 3%.

The builder

The applicants claimed that the builder had breached certain warranties implied into the D&C contract pursuant to s 8 of the DBCA. Those warranties concerned:

suitability of materials;

compliance with the law, which includes the BCA;

fitness for purpose.

The builder did not contest that the warranties ran with the building and that they were incorporated into the D&C construct. However, it denied breaching the warranties, for reasons which it did not articulate.

VCAT held that there was no defence to the allegation that the builder breached the pleaded warranties, and accepted the submission of the applicants that the warranties were not qualified or limited to an obligation to use reasonable care and skill. In the circumstances, it held to be irrelevant whether:

the builder reasonably relied upon the design expertise of the design team;

the builder was not made aware of any concerns regarding the use of ACPs as an external cladding material;

ACPs had been used to clad other high-rise buildings in Melbourne.

Relying on CSIRO testing, VCAT held that it was clear that the ACPs installed were combustible within the meaning of the BCA and AS1530.1, and that the panels caused the rapid spread of the fire beyond the balcony of apartment 805. In the circumstances, the Tribunal readily concluded that the ACPs were not fit for purpose.

On the other hand, VCAT concluded that the builder did not fail to exercise reasonable care by installing ACPs. This conclusion was facilitated by the applicants deciding, for strategic reasons, not to plead a claim in negligence against the builder, in order to avoid the possibility of the builder being entitled to reduce its liability to the applicants for proportionate liability purposes, in accordance with pt IVAA of the Wrongs Act 1958 (Vic) (Wrongs Act).

The building surveyor

In Victoria it is well established that a building surveyor owes a duty of care to the current property owners: Moorabool Shire Council & Anor v Taitapanui [2006] VSCA 30.

It was alleged by the applicants that the building surveyor breached that duty by issuing a stage 7 building permit in circumstances where the design documentation:

provided for cladding that did not, to the degree necessary, avoid the spread of fire in the building and therefore was non compliant with the BCA;

did not contain sufficient information to assess whether the cladding was compliant with the BCA.

The builder separately made a direct claim against the building surveyor for alleged breaches of the consultant agreement, in respect of which VCAT held that the building surveyor’s duties and obligations were co-extensive with its duties at common law to exercise reasonable care. VCAT also described the more expansive pleadings of the builder against the building surveyor as, in large part, a 'distraction', because the critical issue was the building surveyor’s role in approving the specification of the ACPs.

The building surveyor submitted that even if its approval of the specification was based on an incorrect interpretation of the BCA (which, as discussed above, was a finding made by VCAT), it was not the result of a failure to take reasonable care, and that it had a defence under s 59 of the Wrongs Act, based on 'peer professional opinion', which is a modified version of the so-called Bolam test.

VCAT found that the building surveyor had taken insufficient steps to satisfy himself that the ACPs were in fact compliant with the BCA. The building surveyor gave evidence over three days, in respect of which VCAT noted (among other things) that:

he conceded that he had not referred to any scientific document or other reference material to satisfy himself in 2010 or 2011 that the ACPs specified were non-combustible;

he acknowledged that the only way to determine whether the ACPs specified were non-combustible was by way of a test certificate, which was not obtained;

he acknowledged that he was aware that aluminium melts at 660 degrees Celsius and that fires that occur in sole occupancy units can exceed 1000 degrees Celsius;

he could not recall whether penetrations in the ACPs, which exposed the polyethylene core, might be an issue;

he had a poor recollection of instances of other building permits he had issued that had approved the use of ACPs as part of the external walls of a type A or B building.

VCAT accordingly concluded that the building surveyor failed to give adequate or reasonable consideration to the suitability of the ACPs specified. It remarked that:

'such a professional is precisely the kind of person who should have appreciated that [the relevant section of the] BCA … could not have been intended to give a concession to a product incorporating a layer of highly combustible polyethylene that:

constituted at least 50% (and probably closer to 75%) of the assembled product;

failed to rate any mention in the provision (including by way of regulating thickness); and

was sandwiched between two paper thin sheets of aluminium, that were likely to degrade when subjected to temperatures produced by direct flame contact.'

VCAT rejected the 'peer professional opinion' defence on the basis that while it is acknowledged that building surveying was a 'profession' by 2010, and that the practice adopted by the building surveyor in issuing the building permit and approving the ACP specification was widely accepted at the time, it found that the practice was nevertheless unreasonable because the building surveyor’s construction of the BCA did 'not withstand logical analysis'. The Tribunal remarked, in relation to the expert evidence from other building surveyors, that 'otherwise experienced and diligent practitioners were beguiled by a longstanding and widespread (but flawed) practice into giving insufficient scrutiny to the rationale for that practice'.

The issuing of the building permit by the building surveyor was also held to be misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL). VCAT stated that by issuing the permit, the building surveyor represented to the builder, in trade or commerce, that the ACPs were complaint with the BCA. That representation was held to be misleading or likely to mislead.

The architect

The architect had specified an external cladding product, 'indicative of Alucobond', which was the ACP installed by the builder.

The applicants’ claim against the architect for breaches of its obligations under the consultant agreement was framed in negligence. The builder made a separate claim against the architect for breach of the terms of the agreement.

The allegations were that the architect:

failed to ensure that its design of the external cladding satisfied all legislative requirements applicable to the design of the work, including the requirements of the BCA, and was otherwise fit for purpose; and

failed to check whether a sample of the ACPs provided to the builder was BCA compliant and fit for purpose.

In response, the architect submitted that it was ultimately the builder’s responsibility under the D&C contract to select the panels and ensure they were compliant with the BCA. It also submitted that it did not owe a duty of care to the applicants to avoid them suffering pure economic loss.

VCAT found that the architect knew that the ACP product had a polyethylene core, which was combustible. Although the architect contended that its approval of a sample of the product was for aesthetic and planning purposes only, VCAT rejected that.

VCAT found that when the architect executed the consultancy agreement, it undertook express obligations to the builder to exercise due care and skill and to ensure that the architectural drawings prepared complied with all legislative requirements, including the BCA. According to the Tribunal:

'[the architect] may have been less expert in the application of the applicable provisions in the BCA than [the building surveyor] and [the fire engineer], but it was nevertheless sufficiently expert to be alert to the need to ensure that materials it specified did not unduly contribute to flame spread.'

VCAT held that it was unnecessary for it to reach a conclusion concerning whether the architect owed the applicants a duty of care because the applicants did not ultimately press that claim at the hearing, instead relying on the warranty claim against the builder.

The fire engineer

Similar to the claim against the architect, the applicants’ claim against the fire engineer was primarily based on breach of the consultant agreement, and there was separate claim by the builder for breach of the agreement.

The primary allegation against the fire engineer was that it failed to conduct a 'full engineering assessment of the building in accordance with the requisite assessment level' of the International Fire Engineering Guidelines (IFEG), as required by the consultant agreement.

VCAT held that regardless of whatever might be considered a 'typical' fire engineering process pursuant to the IFEG, it was significant that the scope of the agreed contractual services required a 'full fire engineering assessment' to be undertaken. This required the fire engineer to inquire into and assess the range of construction materials for the purpose of establishing potential fire hazards relevant to the building, something which VCAT found the fire engineer had failed to do. Moreover, VCAT found that the fire engineer had actual knowledge of the extensive use of ACPs on the east and west facades of the building and knew that ACPs with a polyethylene core were combustible and could constitute a fire hazard. This required it to, at the very least, 'actively advise about what ACPs were proposed, and advise [the builder] accordingly', which did not occur. In the circumstances, VCAT found that the fire engineer had failed to exercise the standard of care and skill prescribed under the consultant agreement and at common law.

VCAT further found that the fire engineer engaged in misleading or deceptive conduct in contravention of s 18 of the ACL.

The tenant

The tenant was held to have owed a duty to the applicants to take reasonable care in the disposal of his smouldering cigarette and he was held to have breached that duty by failing to ensure that his cigarette was fully extinguished before leaving it in the plastic container. However, VCAT agreed with the applicants’ submission that the extent of tenant’s responsibility for the loss and damage was minimal.

Damages

The quantum of damages was largely agreed by the parties. It was ordered by VCAT that the applicants be awarded damages of $5,748,233.28, to be paid by the builder in the first instance. The building surveyor, the architect and the fire engineer were ordered to reimburse the builder in respect of that amount in proportions of 33%, 25%, and 39% respectively, leaving 3% to be borne by the builder (who had not sought relief as against the tenant). Further sums claimed totalling at least $6,823,165.65 are yet to be resolved.

Implications

The Lacrosse tower fire was one of the key catalysts to significant (if not uniform) legislative reform throughout Australia, to restrict the specification and installation of combustible cladding.2

This decision of VCAT is very significant in that it is the first of its kind in Australia to consider the liability implications of combustible cladding. The fact that VCAT found that the ACP product specified and installed was not compliant with the BCA is likely to cause heightened concern among building and construction professionals that they might face potential liability in the event of a fire or otherwise arising from a property owner being the subject of a rectification order. This in turn is likely to cause the insurance market to harden further for professional indemnity products, with a number of potential implications for building and construction professionals.

On the other hand, the decision is a decisive victory not only for the applicant owners but for the builder, who was able to pass on almost all of its liability to three consultants. This will no doubt provide some degree of comfort to builders and contractors.

It is anticipated that one or more of the respondents will file an appeal, in which case a decision of the Victorian Court of Appeal is likely to be delivered later this year.